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Ask HN: Is it possible to sell a startup, but also keep a small stake in it?

1 points by photon_off ↗ HN
This is possibly a very stupid question, but I'm curious.

Imagine I own a start-up called Foo. Facebook offers to buy Foo for $n. This sounds great, except I think there's a good chance that Facebook will grow Foo to be worth 100 x $n in a few year's time, and I want some exposure to that potentially large upside.

What are my options besides buying some Facebook stock with my $n, or asking for something like 2 x $n?

Is it possible to sell, say, 95% for .95 x $n, but maintain a 5% "stake" in the possible 100 x $n business? I'm not sure how that would work, but surely start-up founders have faced this conundrum before -- how is it resolved?

6 comments

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PaulHoule
Isn't that what you do when you get investment from a VC or from an IPO?
photon_off
As I understand it VCs don't acquire companies, they invest in them. The difference being that in an acquirer buys and runs the company, while a VC only buys a small portion of it and gains exposure to potential upside.

In my case, I'd like to go from an owner to something like a VC -- that is, I'd like to liquidate my company but still maintain a small potential upside. What I don't understand is how this would work, as the acquisition itself would be the upside.

rodiger
As I understand it, they'd buy 90-something% of your shares and you'd keep the rest.
code_Whisperer
Certainly, it's all part of the negotiation. You could negotiate retaining x% of the stock (along with rules regarding stock type, splits, etc.). Another common negotiation when selling your startup would be to retain a position (e.g. lead developer, marketing manager, even CEO!) for x months or years. Or an option for right of first refusal to buy it back if your purchaser ever decides they want to sell the company (or its assets) in the future. Everything is negotiable, but you should always have a lawyer help work out the agreements and details.
photon_off
Thanks for the insights.

> You could negotiate retaining x% of the stock (along with rules regarding stock type, splits, etc.).

Is this at all common? I would imagine that upon acquisition the buyer would prefer to simply roll the company into their own, rather then have to run it as a separate entity. Though, like you said, I imagine this can be negotiated.

code_Whisperer
I am unsure how common it is, but I do know that for many entrepreneurs it can sometimes be painful to sell your company/product/culture/idea that you have worked on for so long and for so hard, so I think it is a way for creators to remain part of their creation. :-)